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Articles Posted in Oppressed Shareholders

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Ownership in a closely held corporation can offer a great opportunity. If the business is successful, corporate ownership can be financially lucrative, offer a career with excellent job security, and otherwise can be a fulfilling venture. Unfortunately, sometimes the controlling shareholders in a small business can take advantage of one or more minority shareholders by ignoring their input, refusing to their share the profits, firing them from their seemingly secure jobs, or otherwise treating them unfairly.

Fortunately, New Jersey law offers protection for the shareholders of closely held corporations from oppression by the controlling shareholders. Specifically, the New Jersey Oppressed Shareholder Statute protects the owners of corporations with 25 or fewer shareholders by granting courts the authority to award a wide variety of relief when the controlling shareholders “have acted fraudulently or illegally, mismanaged the corporation, or abused their authority as officers or directors or have acted oppressively or unfairly toward one or more minority shareholders in their capacities as shareholders, directors, officers, or employees.” N.J.S.A. § 14A:12-7(1).

Among its many protections, the Oppressed Shareholder Statute allows courts to force a corporation to buy out an oppressed shareholder’s stock at a fair price. Although the statute lists dissolution as the remedy when the parties are unable to agree to a price for a buyout, dissolution is considered an extreme remedy that courts impose with caution, only after carefully balancing the interests at stake. Generally, a buyout is considered a more desirable remedy, with the corporation or the majority shareholders buying out the minority shareholder. If the parties are unable to agree on a fair buyout price, the court can order the corporation to purchase the oppressed shareholder’s stock, and in some circumstances can even compel the other shareholders to buy out the minority shareholder.

In addition to protecting a non-controlling shareholder’s equity interest in a closely held corporation, the Oppressed Shareholder Statute protects other interests. N.J.S.A. § 14A:12-7(8)(a). The New Jersey Supreme Court has recognized that one such related interest is the expectation that the shareholder will remain employed with the corporation. Thus, in addition to the value of the shareholder’s ownership in the business, in many situations part of a minority shareholder’s ownership interest in a closely held corporation can include the right to work for the company in a managerial position, with long-term job security and a corresponding salary, as well as a say in the operation and management of the business and its plans for the future. Accordingly, if an employee shareholder is forced out of a closely held corporation, in addition to receiving the value of his or her shares, he or she may be entitled to recover the value of his or her lost salary and employment benefits.

If you are a minority shareholder in a closely held corporation in New Jersey and the controlling shareholders have refused to give you the share of the profits to which you are entitled, squeezed you out of the operations of the business, or fired you from your position with the company, you may have a claim under New Jersey Oppressed Shareholder Statute.

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